How do you estimate the cost of engineering projects?

Defining scope is a detailed but step by step effort. Scope definition alone doesn’t solve anything. Estimate is developed in stages. FEL-2 estimate is developed based on some design details as listed below plus some factors are used. The percent accuracy is agreed by the project team with stakeholders, whether +34%| -25% or different. During FEL-2 details of scope of work is detailed. It’s important that strategy for project execution is defined in this early stage including contract strategy, modularization, site development phases, assessment of existing Utilities to meet the additional demand. Based on the strategy, different studies are conducted in this stage like geotechnical, storm drain, power requirements etc.

This is the hardest step in my experience and requires a lot of iteration. Primary stakeholders often only have a vague idea of what they want and an unrealistic expectation of cost and time. A lot of conversation is required to first understand the critical needs and then the desires. Iteration is required to align available time and money to the agreed to expectations with refinement needed to all three legs of the project. Additionally, this communication needs to involve peripheral stakeholders and team members so that common alignment is achieved at the onset. Too often the PM executes according to her/his perception and goes off course resulting in lost time and additional costs to correct the deficiencies

Probably the the best place to invest time, money and effort is the definition of the scope of work. Unfortunately its all too common for there to be a lack of funding, time and resources to get a reasonable level of definition required so leave sensible levels of contingency (time and funding) to permit economics to continue to test the investment.

One thing I have found helpful in project costing/estimation especially in a competitive bid is leveraging on economy of scale, and good knowledge of the equipment strength/capacity of your manufacturing/fabrication site. This factor gives a project engineer an edge especially during commercial phase or cost defense with your clients. The project engineer can safely make some concessions within the safe bounds/limits from his equipment cost component of the total project cost without encroaching into the profit margin.

To estimate the cost of engineering projects, start by clearly defining the project's scope. This means listing all tasks, materials, and resources required. With a detailed scope, you can break down costs for each item, helping you calculate the total project cost accurately.

It is essential to define the scope of work to be performed to produce a cost estimate. Is the cost estimate required after producing feasibility study or concept design or front end engineering design? Each of these levels will produce design details to a different level of content and related accuracy, which in turn will determine the accuracy level of the cost estimate. Feasibility study may produce cost estimate of +/- 40% accuracy whereas front end engineering design can produce +/- 15% accuracy of cost estimate. It is important to define project boundaries within which the cost estimate will be produce. Any areas or items excluded from the cost estimate should be listed to ensure the limit of the work scope.

There is a higher level way of thinking about the cost and size of a project by starting with the requirements for the product of the project. In industrial plants, this could be: we want a plant that puts out 50 MT of chocolate coated peanuts with varying colors. As a first stab on cost, and without spending to much time and resources, you could then go an look at peanut coating plants and get existing cost. You can then scale the cost with one factor. Say you know that a 100 MT plant costs 14 mn peanuts, then it is reasonable, if not very precise to say that the 50 MT plant will cost 7 mn peanuts. This model can be refined by breaking down the project into components and estimating each component and adding the parts up.

Key elements of project scope include but are not limited to:- Project Objectives:- Clear, measurable goals that the project aims to achieve. Deliverables:- Tangible outcomes or results that the project will produce. Constraints:- Limitations on resources, time, budget, and other factors that impact the project. Assumptions:- Factors that are taken for granted as true for planning purposes. Exclusions:- Elements that are explicitly not part of the project. Boundaries:- The scope's extent and limitations.

The first step in estimating the cost of engineering projects is to define the project scope clearly and comprehensively. This means identifying the project objectives, deliverables, requirements, specifications, constraints, and exclusions. The project scope should be documented and agreed upon by all the stakeholders, as it serves as the basis for estimating the resources, activities, and duration of the project.

For Process Industries, the International Standard AACE (or the Association for the Advancement of Cost Engineering) is used as a standard method. Typically Class1 to Class 5 cost estimate standard is provided with required accuracies at each level

Choosing the right cost estimation method is crucial in engineering projects. In my experience with government engineering projects, we often used the parametric estimating technique. This involves using statistical modeling and historical data to predict costs based on key project parameters. For example, in a radar system installation project, we estimated costs by analyzing data from similar past projects, adjusting for specific factors like system complexity and installation environment. Actionable advice: Identify a method that aligns with your project's nature and data availability. Parametric estimation works well for projects with comparable historical data, ensuring a more accurate and reliable cost forecast.

In my experience as projects manager in one of the most approved general contracting companies in Egypt which deals with oil and gas sector. We must handle each of our site work’s requirements from nearby suppliers about all materials which required for existing activities to get from suppliers economically.

Analogous estimation is a top-down approach that uses historical data from similar past projects to estimate the cost of a new one. Let’s say you want to estimate the cost of an advertising campaign for a new Netflix film: you’d look at the cost analysis of a past project that is similar in size and scope and make some adjustments based on changes in equipment, inflation rates, and resource costs. This cost estimation technique is best for you if you have a reliable record of the cost and duration of past projects.

Put all info on paper All previous costs. Evaluate. Throw it in bin. Do it properly and then cost in the “now” factor and then how quick they want delivery… Cheap. Fast. Quality. Pick two.

Focus on similarities in the project to other previous projects you've worked on where the costs (due to completion or near completion status) are fairly set or otherwise known. Use these as a template to begin estimating what the cost should be if you were to redo the project and piecemeal it together from these known results. Then get refreshed quotes or estimates on the cost of materials, supply, labor, etc. to control for inflation. This can be said more technically, for instance, I often used the parametric estimating method which involves using statistical modeling and historical data to predict costs. But fundamentally you're just making the best guess you can with the information you have, its an art form as much as it is skill.

Choice of an estimation method for engineering would depend on the type of project ( i.e. part of a construction project or a software or engineering only effort) as well as the stage of the project. For construction projects, early stage estimates of engineering can be factors of total construction costs. As the project progresses and the engineering deliverables, scope and level of detail are better defined a bottom up approach with estimates of number and types of documents and typical unit hours for documents can be utilized. For engineering only or software projects, early stages can be estimated by comparing to similar past projects.

I believe in shipbuilding the cost of a new ship starts with the cost of the most recent. I mention this as occasionally stakeholders will try to use 'benchmark' data to suit economics which rarely plays out in either the CAPEX estimate or indeed the ROI.

Specialized software applications streamline the process by leveraging algorithms and historical data. They facilitate parametric modeling, allowing for rapid calculations based on project parameters. Additionally, they support bottom-up analysis, breaking down costs into granular components. These tools often integrate features like vendor quote management and risk assessment, enhancing precision. However, their efficacy hinges on accurate data input and a clear understanding of project requirements. Regular updates and calibration ensure optimal results. Ultimately, utilizing a cost estimation tool empowers engineers to make informed financial projections and mitigate potential budgetary risks, whether these tools are software or written.

The estimate should also be reviewed taking into consideration the risk of the project; risk should be addressed to bring it back to a reasonable level and contingency should be taken to address the remaining risk to the budget and the schedule

Use paper and pen. Make it soft (digital)… when you have a written purchase order. Anything more is a MASSIVE WASTE OF MONEY.

Estimating the cost of engineering projects involves a systematic analysis considering various factors. It includes evaluating resources, materials, labor, and any additional expenses required for project completion. This process relies on historical data, expert judgment, and detailed breakdowns of project components to provide an accurate projection of the overall cost. It also involves continuously refining and adjusting estimates as the project progresses and new information becomes available.

First develope a list of deliverables, then decide what resources are required to produce those deliverables, then estimate how much time each one of these resources must spend at each phase of the project, then add all these hours up and then divide by 0.5 (it takes twice as long to get things done then you expect it to)....and then present this as a Class 5 estimate. Discuss with the client and then refine, refine and refine.....

💯 It’s so embarrassing if you screw up 🆙 Don’t be in a rush. Haters love spelling or grammatical errors. Even worse…. Getting the scope wrong

In a world post-pandemic, where supply chains are super sensitive, this is a tricky task- for example... Does your cost estimate consider disruptions in market supply chains? Does it consider the date on which order will be placed, a year or two from the stage of FEED for example. and so forth. Basically a sound, pragmatic projection considering real world factors is necessary here

Continuous scrutiny and adjustment ensure financial accuracy. Expert input and peer reviews assess assumptions and calculations, improving estimate reliability. Historical project data and benchmarking comparisons provide validation points. As a project evolves, updated information and feedback are incorporated, adjusting the estimate to align with actual progress and evolving requirements. Sensitivity analysis identifies potential cost drivers and uncertainties, allowing for contingency planning. Regular cost tracking during the project execution phase helps pinpoint deviations from the estimate. Rigorous validation and refinement enhance cost control, reducing the risk of budget overruns and ensuring sound financial management.

Cost estimation of an engineering project is never fool proof and accurate. It is only the practices which are adopted become the acceptable ways to derive the cost of any project. The components of labour, material, testing, proof checking, fulfilling various conditions complacent to fulfillment of various objectives of engineering aspects are always approximate and never pinpointedly correct. It is only the average of large number of similarly awarded contracts can give the fair idea of cost estimation.

Great article, i like specially the comments on thevchoice of estimating tools and validation. Comments that can add value to the article pertain to permitting constrains and required sustainability factors should be considered to avoid surprises. If the schedule is a driver, the cost estimate should also consider this.

Accurate cost estimation in engineering projects involves detailed analysis of materials, labor, and unforeseen challenges. In the energy sector, estimating a wind farm's cost requires assessing turbine prices, land acquisition, and installation expenses. Incorporate historical data and industry benchmarks. Contingency plans for potential cost overruns are vital. Learning from past projects, like a successful hydroelectric plant, refines estimation methods. Regularly update estimates as project details evolve to ensure financial viability and successful project completion.

Lors de l'estimation des coûts, il est crucial de prendre en compte divers éléments supplémentaires. Ces éléments incluent les conditions économiques, les fluctuations des prix des matériaux, les contraintes réglementaires et les frais de maintenance. Les coûts indirects, tels que les frais généraux, les assurances et les coûts de gestion, doivent également être inclus. De plus, il est essentiel de prévoir des réserves pour les imprévus et les ajustements de dernière minute. Une estimation complète et précise est indispensable pour une planification budgétaire efficace et pour assurer la rentabilité du projet.

Pour estimer le coût des projets d'ingénierie, plusieurs éléments clés doivent être pris en compte. Les matériaux, leur disponibilité et les fluctuations de prix, y compris l'inflation si elle est prise en compte, jouent un rôle important. La main-d'œuvre, avec les salaires, les heures supplémentaires et les compétences requises, doit également être évaluée. Il faut inclure les coûts des équipements, qu'ils soient loués, achetés ou entretenus. Les imprévus, comme les retards, doivent être anticipés avec une marge de sécurité. Enfin, les exigences réglementaires, telles que les permis et les normes environnementales, peuvent aussi générer des coûts supplémentaires.

Project estimating methods and approaches differ based on specific project. Have we done it before, has anyone done it before? Is it hardware or resource driven. Hardware is often easier than resource, since error in schedule completion impacts carrying cost if its a dedicated team. Its hard to put all of the variables into a simple approach, especially for startups. Until you have a detailed plan and buy in, the 80/20 rule is king, with a contingency thrown in based on perceived risk.

Additional Points to consider:- Resource Availability:- Consider the availability and skill levels of available team members. Expert Input:- Consult with domain experts or team members who have experience on past similar projects.

… hand on heart… Decades in the game… … your job is to take as much coin off that table as possible… .. make sure you UNDERSTAND the job. .. price accordingly You can go broke sitting on a beach drinking beer 🍺 or you can royally screw up … when… … you have to work for zero profit or worse… losing it. Don’t be a rip off merchant but understand only this… … the only businesses that survive are the ones that profit.

It is important to consider the accuracy of cost estimate required by stakeholders for final investment decision. If accuracy of class estimate required is higher then a front end engineering design (FEED) might be required for large engineering projects to achieve this so sufficient level of engineering design/scope can be ascertained before cost estimation is done.